Recognizing the Development of Major Economic Trends

Due to the interconnected nature of the world’s media and foreign exchange markets, it is not so much what events are important on the economic calendar for forex analysis to profit from movements in the market. Every trader has already performed varying degrees of fundamental analysis to react to whatever is released on the economic calendar by all significant entities, both from the public and private sector. What is critical is recognizing which major economic trends are developing from important events on the economic calendar and actions by government officials.

At this epoch in the foreign exchange markets, due to the impact of The Great Recession, and for the years ahead, the policies and the statements of global central bankers, particularly those from the Federal Reserve, are important events, although not on the economic calendar. Based on the Quantitative Easing III program of the Federal Reserve which hinges on the employment rate in the United States, the job rate in the United States is crucial for forex traders. The recent jobs report from the United States that topped analyst expectations was very bullish for the US Dollar.

From its role as the second biggest economy and the largest consumer of so many goods and services, economic reports and government announcements from China must be included in any fundamental analysis of major currencies. As China imports so many natural resources from Australia, the strength of its economy has a huge impact on the Australian Dollar.

Monitoring the important events on the economic calendar is a critical component of fundamental analysis for the long term direction of foreign currency units. In her book, “Hedge Hunters,” Katherine Burton wrote that the best asset fund managers made their billions from selling off losing positions quickly and holding on to the winners. The events from the economic calendar are vital for the forex analysis needed to determine which currencies to hold and which to dump.

As an example, when Federal Reserve Chairman Ben Bernanke announced Quantitative Easing II, a program that had the Federal Reserve acquiring $700 billon in Treasury Bonds from expanding its balance sheet, in August 2010 at the Jackson Hole economic meeting, the United States Dollar dropped in value. Bernanke’s speech as an admission that the United States economy was too weak for its Treasury Bonds to sell at an interest rate low enough to foment recovery from The Great Recession, particularly for the housing sector.

About a year later, the credit rating of the United States was downgraded by Standard & Poor’s.

Over the same period, the value of the Australian Dollar rose. A major factor for this was the traditional safe haven role of the Aussie. Another reason was how strong the Chinese demand still was for natural resources and materials from Australia to feed its factories and machinery.

Before the Friday jobs report in the United States that was so bullish for the The Greenback, Esther George, President of the Kansas City Federal Reserve Bank, released a prepared speech for an upcoming event that supported an ending to Quantitative Easing III, the open-ended acquisition of $85 billion in Treasury Bonds and mortgage-backed securities by the Federal Reserve in an effort to maintain a low interest rate environment.

As a result of those remarks, the US Dollar fell. But it rallied just two days later on the jobs report that was bullish for the American economy, and thus The Greenback.